Intercorporate Dividends - how to complete

Tax Topics
1

Have a client 4 partners own the operating company. The 4 partners in 2025 set up 2 holding companies each holding company is owned by 2 partners of the operating company. Best practice to complete the transfer of dividends from the operating company to each of the holding companies, tax free?

2

The best advice is to engage an accountant to advise on the particular situation. You have not provided enough information to provide any advice to begin with - for example it’s unclear whether Opco is owned directly by the individuals or if it owned by the Holdcos. You should seek professional advice.

3

Opco is owned by the individuals

4

Then I will offer a little more free advice. You cannot pay dividends from Opco to Holdco unless Holdco owns shares in Opco. There are also other considerations with intercompany dividends such as the potential application of Part IV tax and ss.55(2). This is why you should engage a professional.

1 Like
5

@iain.fyffe is correct.
Opco can not pay dividends to a Holdco who isn’t a shareholder.

It’s not clear why the Holdco’s were formed, but if you are looking to distribute dividends from Opco to the Holdco’s the individuals may need to section 85 their Opco shares over to their respective Holding companies.

Filing the T2057 can become expensive if not completed properly.

6

in addition to the comments by iain.fyffe and snoplowguy
these individuals could be setting themselves up for something expensive - professional expertise would be wise to be applied to other potential issues also, such as corporate attribution, TOSI, GAAR, surplus stripping…
(Don’t know this without looking at the whole file - cannot tell from this).

7

You guys just bring up a lot of the fun stuffs that I have seen and shaking my heads when I see them. Without knowing the association rule, I seen files with multiple incorporated businesses, when I bring up the association rule, they had no idea, having employees incorporated business, have no idea about incorporated employee rule, thinking they can just google a tax law, and find way to walk around it